We are currently processing a 2-year FHA recertification for a small 6-unit condominium.  It was approved with FHA in June of 2013 so it should be a piece of cake, right?  Well, maybe not…

Our contact with the association hired us after reading a few of our blogs.  He called when he had some questions regarding FHA loan concentration limits.  Satisfied with our level of understanding of the FHA guidelines and process, he hired us to help him.

During our process of collecting the documents, we uncovered an Amendment to the Declaration filed in 2012, which was prior to the project’s previous approval (nice alliteration).  The Amendment stated that as of the date of filing, all units must now only be owner-occupied and gave powers to the Board to evict tenants and levy penalties against the unit owners if they leased their units.

Because leasing is not allowed in the project at all, FHA will not recertify this project.  FHA states that at least one unit in any condominium project must be allowed to be leased; the outright restriction of leasing if forbidden.

I brought this to the attention of our client.  He was baffled because they were approved in 2013.  I said that the rules hadn’t changed since then so the only potential reason was that the Amendment wasn’t provided to FHA during the original approval process.

He asked the next logical question: “Can we not supply that document to FHA?”

I replied: “Part of the submission package is a document that we sign certifying that the information provided is true, accurate and complete and that the project meets FHA’s guidelines.  With knowledge of the Amendment, signing this form constitutes fraud and the penalty can be 20 years imprisonment and/or $1,000,000 fine.  This is something that we simply won’t do.”

He agreed and retracted his question and posed a second asking what can be done to correct this.  I told him that they would have to file an Amendment on the land records to remove this restriction.  Currently, he is working with the association’s attorney to draft an amendment that will allow a maximum of 3 units to be leased at any given time.  This leasing restriction does meet FHA’s guidelines.

Top Photo Credit: (c) Can Stock Photo / elenathewise